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To rein in the city's runaway housing prices, Hong Kong's Financial Secretary John Tsang Chun-wah announced an additional 15 per cent stamp duty on non-permanent-resident and corporate buyers starting from October 27, 2012. The move prompted speculation over the effectiveness of taxation on the real estate market and criticisms that Hong Kong was turning away from its roots as a free market economy in favour of a more protectionist market environment.

Property›Hong Kong & China

PROPERTY

Developers urge tax exemption for luxury flats

Group urges government to exclude city firms and HK$30 million properties from stamp duty

A powerful group that represents the interests of Hong Kong developers has urged the government to exempt the city's firms from its first property tax aimed at non-local and corporate buyers.

The Real Estate Developers Association also wants luxury flats of more than HK$30 million to be excluded from the special tax, known as buyer's stamp duty, which is set at 15 per cent of the transaction price.

In a letter to the government, Reda says the authorities should specify when they would end the anti-speculation taxes, which it warns will hurt Hong Kong's reputation as one of the world's freest economies.

Stewart Leung Chi-kin, chairman of the association's executive committee, said yesterday that it was "unhealthy" for the government to intervene too deeply in the property market.

Leung said the new tax would open a Pandora's box.

"Targeting overseas investors will only damage our reputation as one of the freest economies in the world," he said. "It will cast a shadow in the minds of international investors. This time it is a tax on buying property; who knows what tax the government will impose next time when other issues arise?"

Leung said the association was asking for the tax to be lifted on corporate buyers, or as a start, at least on "Hong Kong companies of which directors or shareholders are all Hong Kong permanent residents".

Industry analysts dismissed the concerns, saying Reda was only trying to protect its own interests and favouring rich buyers of upmarket flats. Professor Chau Kwong-wing, of the University of Hong Kong's department of real estate and construction, said: "Look at Singapore. I do not see its foreign investments being hit after the introduction of buyer's stamp duty."

The city state launched a 10 per cent additional tax for foreign buyers last year to cool its property market.

On Reda's proposal to exempt properties of more than HK$30 million from the new tax, Vincent Cheung Kiu-cho, national director of greater China at Cushman & Wakefield, said: "The result will be rich people do not need to pay the tax, but less-better-off customers are asked to pay. That will trigger an issue."

A spokesman for the Transport and Housing Bureau said: "The government will respond to the [association's] proposals after careful consideration."

In November 2010, Hong Kong launched a special stamp duty targeted at short-term speculation, and property resales within 12 months of purchase virtually disappeared.

But resale transactions between 12 and 24 months of purchase rose this year from 83 cases in March to 218 in September.

The government extended that measure on October 27 from two years to three years, while at the same time applying the new buyer's stamp duty.

In a further tightening of the rules, it imposed the special stamp duty on a sliding scale. Those selling a property within six months of buying it will pay 20 per cent of the sale price.

The rate will fall to 15 per cent in resales of within one year, and to 10 per cent in resales of one to three years after purchase.

This article appeared in the South China Morning Post print edition as Developers want luxury flats to be exempt from tax